Fertile Minds: Business planning – how to get a bank loan

Business planning workshops proved the most popular at Fertile Minds. Jez Fredenburgh got answers to key questions at the session run 
by Euryn Jones, regional agricultural manager at HSBC

Are banks keen to lend to young farmers?

Banks like lending to successful businesses, says Mr Jones. The key thing is to provide evidence of how you will make your business successful.

How much can you use your assets to secure a loan against?

Typically, HSBC might lend 50% of the value of stock, or 70% of the value of property.

What should you include in a business plan?

The complexity and content of a business plan will depend on the size and type of your business, but suggested headings include:

  • Goals – what do you want to achieve?
  • Product or service – what do you plan to produce or provide?
  • Management – who will manage the enterprise and why are they suitable?
  • Finance – what are your costs and returns? What are your projections? How will you finance your investment other than a bank loan? How will you finance repaying the loan?
  • Market – who is your market and what is the demand?
  • Prices – what will you charge or what are the market prices?
  • Sales and promotion – how will you market your product or service?
  • Distribution – how will you distribute your product?

What is the most common mistake made by young farmers asking for a bank loan?

Asking for a loan that is too big compared with how much they are able to invest of their own cash.

How do banks assess someone for a loan?

Think CAMPARI says Mr Jones, for the key things a bank manager will assess:

  • Character: A business plan is only as good as the person who will turn it into reality. You’ll need evidence of a good track record – in life, not just business. If you’ve never run a business, how else can you demonstrate competence? They’ll also examine your reputation, so build contacts who can give you references.
  • Ability: This is about you and your team. Your professional ability – your skills, technical knowledge and possibly qualifications, as well as your financial ability, your business management and financial forecasts. If you don’t have all this yourself, demonstrate you have competent people who fill the gaps, such as a business advisor, accountant or nutritionist.
  • Means: Do you have the means to carry out your plan and what will you invest of your own capital or assets?
  • Purpose: You need a clear purpose to your plan – what will the loan be used for and how will this help grow or start your business? Show you have properly thought through why you need the loan, what you will spend it on, and the costings of this.
  • Amount: Try to work out early on how much you will need, so you don’t under- or over-borrow. A good bank manager will ask if the figure you request is enough, says Mr Jones. The last thing you want is to borrow a sum that doesn’t allow you to carry out your plan properly, inhibiting your growth and causing loan repayment problems.
  • Repayments: This is the key thing a bank will assess – can you afford the repayments? Detail your financial forecasts – input costs, sales forecast, return on investment, profit and so on – and your previous performance if relevant. If you need help with this, ask a good business consultant. In your costings, give physical and financial details such as the number of cows, litres of milk produced and price of milk. To really impress, show your costings for price volatility and how your forecast would alter. Show where your repayments will come from – profit, savings, or other income sources such as employment?
  • Insurance: Show you have thought about your repayments if your business plan doesn’t work. Do you have property, stock or guarantors that could be used for repayments?